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When a new contractor heads out into the construction world on their own, they quickly realize that striking the perfect balance between sales and credit takes concentrated effort. As their business grows and they employ sales and credit teams, getting the two to see eye-to-eye can be even harder.
Sales teams are all about the numbers. They push for more and more sales, hoping to increase business, prove their worth, and increase their commissions. The credit team, on the other hand, can often feel like it’s playing catch-up. They’re trying to minimize risk and improve recovery.
If you’re wondering how to talk to the sales team about mechanics liens and preliminary notices to keep everyone on the same page, you came to the right place. We’ll outline some points to bring up with your team, and lean on credit manager Thea Dudley, author of The Credit Overlord’s Guide to Credit & Collections. Her expertise in smoothing out the wrinkles in your company’s sales and credit department is invaluable.
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Open the dialogue
If you want people to follow you, you have to give them a reason. Your sales team might know you’re serious about lien rights, but they won’t be until they know why.
You have to open the dialogue and have this conversation if you want results. In fact, your team might surprise you.
Thea Dudley says this in her book: “Communicate with everyone, but especially with your sales team — what are they hearing in the field? Salespeople are like hairdressers and florists; they know everything. If something is changing at a company — the management, the purchaser, ownership, quality issues, you name it — they are usually in the know.”
“Make sure you have open lines of communication with your sales team. They have to trust you and know that you are on their side (of course, that does not mean being a doormat).”
7 arguments to get the sales team on board with liens and notices
Whether you’re the company owner or the credit manager, the following points will help your sales team understand where you’re coming from — without hindering their sales.
1. Sales don’t matter if you can’t collect
You might want to soften the phrasing, but truly, sales contracts aren’t worth the paper your sales team wrote them on if you aren’t getting paid.
Sales keep business coming in the door, and you can’t keep that door open without them. But, if those customers aren’t paying their bills, your company is acting as a creditor. That’s a tough business, and it’s not the one you signed up for.
2. A preliminary notice is a communication tool
The construction industry often thinks of preliminary notices as a way to protect their lien rights and payments. While that’s true, they’re also an outstanding communication tool.
When you start a new job, you’ll typically send preliminary notices to the GC, the project owner, and the lender. These are also the people cutting the checks, so a preliminary notice is an actually wonderful way to make a professional first impression. Many companies have discovered that sending preliminary notices actually puts their good customers at ease. Considering that those folks are also the people who’ll be hiring for projects in the future, your sales team could also look at preliminary notices as lead generators.
Keep this next point in mind as well: A customer balking at a preliminary notice could be a sign of trouble to come.
Thea says it best: “When someone tells me they are offended by my wanting to send notice about/pre-lien the job, it sends a red flag up for me.”
3. Mechanics lien security helps close the sales
Your credit team will be a lot more likely to extend credit on a project if they know the payments are safe. So, your sales team can actually leverage lien rights to close the deal. While a customer might balk at that statement at first, explaining that your company is protecting its interests in order to go out on a limb for your customers might clear it up.
While it might sound salesy, it’s true.
4. Your lien rights are good for your customers, too
As a subcontractor, your lien rights have an effect up and down the payment chain. If your customer feels shaky about all this lien talk, tell your sales staff to explain that your lien rights protect the customer’s interests as well.
Unless you’re the prime contractor, your payments aren’t coming out of your customer’s pockets. Your payments have to flow through the GC, sometimes another subcontractor or two, and then you. If your customer can’t pay you because they haven’t gotten paid, leveraging your lien rights will get the entire pay train rolling again, putting cash in your customer’s pocket along the way.
When it comes to protecting lien rights, Thea says, “It gives a clear picture of who is on the job. It protects everyone from the supplier to the owner. The owner knows exactly who is on their project and can then ask for proof of payment….It gives suppliers, contractors, and subs the ability to call the owner and ask about payment.”
That’s firepower for the customer, too.
5. If your customer pays on time, liens aren’t a factor
Does “He’s a good customer, I’m sure he’ll pay us on time!” sound familiar? Great, your company protecting its lien rights shouldn’t worry him then.
“This is where credit becomes sales. It is up to the credit professional to explain why this is a harmless but good idea for everyone involved,” Thea says.
This can be a big hurdle for salespeople. After a few repeat sales, they’re afraid that mentioning liens and lien rights will offend their golden goose.
Explain to your sales staff that good customers have nothing to worry about. You’re not going to file a lien if the customer is communicating with you and you’re getting paid.
6. Transparency encourages good communication
Make sure your sales team knows there’s value in transparency. Putting everything out on the table at the early stages of the project can build trust and good communication.
If your sales staff can communicate this point to the customer, this conversation can even bolster your customer’s confidence in the salesperson. They’ll feel that they’re getting a fair and honest deal, free from any “salesy” smoke and mirrors.
Tipping these cards now can also help maintain communication if payment issues do arise. Should your customer have a hard time making progress payments, they might recognize that it’s important to address it head-on with you, the way your sales staff did with them.
Some customers might not be familiar with a preliminary notice or pre-lien, and they can sound pretty intimidating. For those customers, it’s important to communicate exactly what this document is and the effect it’ll have on them.
Thea breaks it down like this: “Pre-liens are not recorded anywhere; they are not public record. They merely are a notice to the owner, lender, GC, etc. that whoever sent the notice is on the project and has secured their rights to use the mechanics lien law.”
There’s nothing scary about that.
7. It’s not personal. It’s policy.
Your sales team needs to make it clear to your customers that your stance on lien rights and preliminary notices is policy, not some from-the-hip decision you made when their project walked through your door.
The great thing about policy is: It’s non-discriminatory, and you can enact new policies at any time. If a returning customer has a problem with your company protecting its lien rights, the sales team can explain that it’s a new policy, and it’s across the board.
Here’s the thing, though. Your team needs to know it can’t bend on your policies. Once they make an exception or two, it is discriminatory, and it’s no longer an actual policy.
Getting your teams on the same page
Sales and credit teams need to understand and appreciate each other’s work. While the two have very different purposes, their goals should certainly be the same.
They should both be focusing on lucrative projects and growing the business, and the best way to do that is to work together, creating smart contracts with good, paying customers.